Etymology
The word "accrual" comes from the Latin word "accrescere," which means "to grow" or "to increase."
Meaning
In accounting, accrual means the process of recognizing revenue and expenses in the period in which they are earned or incurred, regardless of when the cash is actually received or paid. This is in contrast to the cash basis of accounting, which recognizes revenue and expenses only when cash is received or paid.
Origin
The concept of accrual accounting originated in the early 19th century. Prior to this, most businesses used the cash basis of accounting. However, as businesses became more complex, it became clear that the cash basis of accounting did not provide a true picture of a company's financial performance. This is because the cash basis of accounting does not take into account revenue that has been earned but not yet received, or expenses that have been incurred but not yet paid.
Accrual accounting was developed to address the shortcomings of the cash basis of accounting. Accrual accounting provides a more accurate picture of a company's financial performance because it takes into account all revenue and expenses, regardless of when the cash is actually received or paid.
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